Americans are living longer than ever before. At the turn of the 20th century, the average life expectancy was about 47 years. As we enter the 21st century, life expectancy has increased significantly. As a result, we face more challenges and transitions in our lives than those who came before us.
One of the most difficult transitions people face is the change from independent living in their own home or apartment to living in a long term care facility or "nursing home." There are many reasons why this transition is so difficult. One is the loss of home... a home where the person lived for many years with a lifetime of memories. Another is the loss of independence. Still another is the loss of the level of privacy we enjoy at home, since nursing home living is often shared with a roommate.
Most people who make the decision to move to a nursing home do so during a time of great stress. Some have been hospitalized after a stroke, some have fallen and broken a hip, still others have a progressive disease, like Alzheimer's, and can no longer be cared for in their own homes.
Whatever the reason, the spouse or relative who helps a person transition into a nursing home during a time of stress faces the immediate dilemma of how to find the right nursing home. The task is no small one, and a huge sigh of relief can be heard when the right home is found and the loved one is moved into the nursing home. For many however, the most difficult task is just beginning: How to cope with nursing home bills that average more than $7000.00 per month.
How to Pay for Nursing Home Care:
One of the things that concerns people most about nursing home care is how to pay for that care. There are basically four ways that you can pay the cost of a nursing home:
1. Long Term Care Insurance - If you are fortunate enough to have this type of coverage, it may go a long way toward paying the cost of the nursing home. Unfortunately, long-term care insurance has only started to become popular in the last few years and most people facing a nursing home stay do not have this coverage.
2. Pay With Your Own Funds - This is the method many people use at first, even though with proper planning, they would not have to. Quite simply, it means paying for the cost of a nursing home out of your own pocket. Unfortunately, with nursing home bills averaging over $7000.00 per month, few people can afford a long term stay in a nursing home.
3. Medicare - This is the national health insurance program primarily for people 65 years and older, certain younger disabled people, and people with kidney failure. Medicare provides short term assistance with nursing home costs, but only if you meet the strict qualification rules.
4. Medicaid - This is a federal and state funded and state administered medical benefit program which can pay for the cost of the nursing home if certain asset and income tests are met.
Since the first two methods of private pay (i.e. using your own funds) and long term care insurance are self-explanatory, our discussion will concentrate on Medicare and Medicaid.
What About Medicare?
There is a great deal of confusion about Medicare and Medicaid.
Medicare is the federally funded and state administered health insurance program primarily designed for older individuals (i.e. those over age 65). There are some limited long term care benefits that can be available under Medicare. In general, if you are enrolled in the traditional Medicare plan, and you've had a hospital stay of at least three days, and then you are admitted into a skilled nursing facility (often for rehabilitation or skilled nursing care), Medicare can pay for up to 100 days.
If you qualify, traditional Medicare may pay the full cost of the nursing home stay for the first 20 days and can continue to pay the cost of the nursing home stay for the next 80 days, but with a deductible that is approximately $100 per day. Some Medicare supplement insurance policies will pay the cost of that deductible. In order to qualify for this 100 days of coverage, however, the nursing home resident must be receiving daily "skilled care" and generally must continue to "improve"
While it's never possible to predict at the outset how long Medicare will cover the rehabilitation, from our experience, it usually falls far short of the 100 day maximum. Even if Medicare does cover the 100 day period, what then? What happens after the 100 days of coverage have been used?
At that point, in either case you're back to one of the other alternatives... long term care insurance, paying the bills with your own assets, or qualifying for Medicaid.
What is Medicaid?
Medicaid is a benefits program which is state and federally funded and administered by each state. Sometimes the rules can vary from state to state.
One primary benefit of Medicaid is that, unlike Medicare (which only pays for skilled nursing), the Medicaid program will pay for long term care in a nursing home once you've qualified. Medicare does not pay for treatment for all diseases or conditions. For example, a long term stay in a nursing home may be caused by Alzheimer's or Parkinson's disease, and even though the patient receives medical care, the treatment will not be paid for by Medicare. These stays are called custodial nursing stays. Medicare does not pay for custodial nursing home stays. In that instance, you'll either have to pay privately (i.e. use long term care insurance or your own funds), or you'll have to qualify for Medicaid.
Why Seek Advice for Medicaid?
As life expectancies and long term care costs continue to rise, the challenge quickly becomes how to pay for these services. Many people cannot afford to pay $7000.00 per month or more for the cost of a nursing home, and those who can pay for a while may find their life savings wiped out in a matter of months rather than years.
Fortunately, the Medicaid Program is there to help. In fact, in our lifetime, Medicaid has become the long term care insurance of the middle class. To be the eligible to receive Medicaid benefits requires that you pass certain tests on the amount of income and assets that you have. The reason for Medicaid planning is simple. First, you need to provide enough assets for yourself and your loved ones - they too may have a similar crisis. Second, the rules are extremely complicated and confusing. The result is that without planning and advice, many people spend more than they should and their financial security can be jeopardized.
Exempt Assets and Countable Assets: What Must Be Spent?
To qualify for Medicaid, applicants must pass some fairly strict tests on the amount of assets they can keep. To understand how Medicaid works, we first need to review what are known as exempt and non-exempt (or countable) assets. Exempt assets are those which Medicaid will not take into account (at least for the time being). In general, the following are the primary exempt assets:
-Homestead and any adjacent real estate. The home must be the principal place of residence.
-Personal belongings and household goods.
-Irrevocable prepaid funeral contract.
-Burial spaces and certain related items for the applicant and spouse.
-Up to $1,500 designated as a burial fund for the applicant and spouse.
-Value of life insurance if face value is $1,500 or less.
All other assets are generally non-exempt, and are countable. Basically, all money and property, and any item that can be valued and turned into cash, is a countable asset unless it is one of those assets listed above as exempt. This includes:
-Cash, savings, and checking accounts, credit union share and draft accounts.
-Certificates of deposit.
-U.S. Savings Bonds.
-Individual Retirement Accounts (IRA), 401K, 403B, 457, Keogh plans.
-Nursing home accounts.
-Prepaid funeral contracts which can be canceled.
-Trusts (depending on the type of the trust)
-Real estate (other than the primary residence).
-More than one car.
-Boats or recreational vehicles.
-Stocks, bonds, or mutual funds.
-Land contracts or mortgages held on real estate.
While the Medicaid rules themselves are very complicated, it's safe to say that a single person will qualify for Medicaid as long as he or she has only exempt assets plus no more than $2000.00 in countable assets.
Some Common Questions:
I've added my kid's names to our bank account. Do they count all the money is the account? Yes. The entire amount is counted unless you can prove some or all of the money was contributed by the other person who is on the account. This rule applies to cash assets such as:
-Savings and checking accounts
-Credit union share and draft accounts
-Certificates of deposit
-U.S. Savings Bonds
Can't I Just Give My Assets Away?
Many people wonder, can't I just give my assets away? The answer is, maybe, but only if it's done exactly right. The law has severe penalties for people who simply give away their assets to create Medicaid eligibility. For approximately every $6400.00 given away during the five years prior to the filing of a Medicaid application creates a one month penalty period under the Medicaid rules. So even thought the Federal Gift Tax laws allow you to give away up to $12,000 per year without gift tax consequences, those gifts would result in a penalty period under the Medicaid rules.
Though some families do spend virtually all of their savings on nursing home care, Medicaid does not require it. There are a number of legal strategies which can be used to protect your family financial security.
Division of Assets: Medicaid Planning for Married Couples
Division of Assets is the name commonly used for the Spousal Impoverishment provisions of the Medicare Catastrophic Act of 1988. It applies only to couples. The intent of the law was to change the eligibility requirements for Medicaid where one spouse needs nursing home care while the other spouse remains in the community, i.e., at home. The law, in effect, recognizes that it makes little sense to impoverish both spouses when only one needs to qualify for Medicaid assistance for nursing home care.
As a result of this recognition, division of assets was born.
Basically, in a division of assets, the couple gathers all their countable assets together in a review. Exempt assets, discussed above, are not counted.
The countable assets are then divided in two, with the at-home or "community spouse" allowed to keep one half of all countable assets up to a maximum of approximately $110,000. The other half of the countable assets must be "spent down" until less than $2,000 remains. The amount of the countable assets which the at-home spouse gets to keep is called the Community Spouse Resource Allowance (CSRA).
Each state also establishes a monthly income floor for the at-home spouse. This is called the Minimum Monthly Maintenance Needs Allowance. This permits the community spouse to keep a minimum income ranging from about $1,750 to $2,300.
If the community spouse does not have at least $1,750 in income, then he or she is allowed to take the income of the nursing home spouse in an amount large enough to reach the Minimum Monthly Maintenance Needs Allowance (i.e., up to at least $1,750). The nursing home spouse's remaining income goes to the nursing home. This avoids the necessity (hopefully) for the at-home spouse to dip into savings each month, which would result in gradual impoverishment.
To illustrate, assume the at-home spouse receives $750 per month in Social Security. Also assume that her needs are calculated to be the minimum of $1,750. With her Social Security, she is $1000.00 short each month.
In this case, the community spouse will receive $1000 (the short fall amount) per month from the nursing home spouse's Social Security and the rest of the nursing home spouse's income will then go to pay for the cost of his care.
This does not mean, however, that there are no planning alternatives which they can pursue. Consider the following case studies:
Case Study: Medicaid Planning For Married People
Ralph and Alice were high school sweethearts. Two weeks ago, Ralph and Alice celebrated their 51st anniversary. Yesterday, Ralph, who has Alzheimer's, wandered away from home. The police found him, hours later, sitting on a street curb, talking incoherently. They took him to the hospital. Now the family doctor has told Alice that she needs to place Ralph in a nursing home. Ralph and Alice grew up during the Depression. They always tried to save something each month. Their assets, totaling $120,000, not including their house, are as follows:
Savings account ... $ 35,000
CDs ... 65,000
Money Market account ... 17,000
Checking account ... 3,000
Residence (no mortgage) ... 100,000
Ralph gets a Social Security check for $1000 each month; Alice's check is $350. Her eyes fill with tears as she says, "At $7000 to the nursing home every month, our entire life savings will be gone in less than two years!" What's more, she's afraid she won't be able to pay her monthly bills, because a neighbor told her that the nursing home will be entitled to all of Ralph's Social Security check.
There is good news for Alice. It's possible she will get to keep everything all of their assets and all of the income... and still have the state Medicaid program pay Ralph's nursing home costs. The process may take a little while, but the end result will be worth it.
To apply for Medicaid, she will have to go through the Department of Human Services (DHS). If she does things strictly according to the way the DHS tells her, she will only be able to keep about half of her assets plus she will be entitled to a minimum monthly income to pay her expenses. But the results can actually be much better than that.
It is essential that Alice get advice from someone who knows the Medicaid rules. With proper advice, Alice will be able to avoid the spend-down and keep everything she and Ralph have worked so hard for.
This is possible because the law does not intend to impoverish one spouse because the other needs care in a nursing home. This is certainly an example where knowledge of the rules, and how to apply them, can be used to resolve Alice's dilemma.
Of course, proper Medicaid planning differs according to the relevant facts and circumstances of each situation as well as the current state law. For example, some children never gain independence - they remain dependent on their parents. What can be done in such a case?
Case Study: A Trust for a Disabled Child
Margaret and Sam have always taken care of their daughter, Elizabeth. She is 45, has never worked, and has never left home. Elizabeth is "developmentally disabled and receives SSI (Supplemental Security Income). They have always worried about who would take care of her after they die. Some years ago, Sam was diagnosed with dementia. His health has deteriorated to the point that Margaret can no longer take care of him. Now she has placed Sam in a nursing home and is paying $7000 per month out of their savings. Margaret is even more worried that there will not be any money left for the care of Elizabeth.
Margaret is satisfied with the nursing home Sam is in. The facility has a Medicaid bed available that Sam could have if he were eligible for Medicaid. However, according to the information she got from the social worker, Sam is over $75,000 away from Medicaid eligibility. Margaret wishes there was a way to save the $75,000 for Elizabeth after she and Sam are gone. There is.
Margaret can consult an Elder Law attorney to set up a "special needs trust" with the $75,000 to provide for Elizabeth. As soon as she does, Sam will be eligible for Medicaid. Elizabeth won't lose her benefits, and her security is assured.
Of course, all trusts must be reviewed for compliance with Medicaid rules. Also, failure to report assets is fraud, and when discovered, will cause loss of eligibility and repayment of benefits.
I Heard I Can Give Away $10,000 Per Year. Can't I?
As discussed earlier, many people have heard of the Federal Gift Tax provision that allows them to give away $10,000 ($12,000 currently) per year without paying any gift taxes. What they do not know is that this refers to a Gift Tax exemption. Having heard of the exemption, they wonder, "Can't I give my assets away?" The answer is, maybe, but only if it's done within the strict allowances of the Medicaid rules.
So even though the federal Gift Tax law allows you to give away up to $12,000 per year without incurring tax, those gifts could result in a period of ineligibility under the Medicaid rules. Still, some parents want to make gifts to their children before their life savings is all gone. Consider the following case study:
Case Study: Financial Gifts to Children
After her 73 year old husband, Harold, suffers a paralyzing stroke, Mildred and her daughter, Joan, need advice. Dark circles have formed under Mildred's eyes. Her hair is disheveled. Joan holds her hand.
"The doctor says Harold needs long-term care in a nursing home," Mildred says. "We have some money in savings, but not enough. I don't want to lose our house and all our hard-earned money. I don't know what to do."
Joan has heard about Medicaid benefits for nursing homes, but doesn't want her mother left destitute in order for Harold to qualify for them. Joan wants to ensure that her father's medical needs are met, but she also wants to preserve Mildred's assets.
"Can't Mom just give her money to me as a gift?" she asks. "Can't she give away $10,000 per year? I could keep the money for her so she doesn't lose it when Dad applies for Medicaid."
Joan has confused federal Gift Tax law with the issue of transfers and Medicaid eligibility. A "gift" to a child in this case is actually a transfer, and Medicaid has very specific rules about transfers.
At the time Harold applies for Medicaid, the state will "look back" five years to see if any gifts have been made. The state won't let you just give away your money or your property to qualify for Medicaid. Any gifts or transfers for less than fair market value that are uncovered in the 5 year look-back period will penalize Harold's receipt of Medicaid benefits.
So what can Harold and Mildred do? They can institute a formal gifting plan, save a good portion of their estate, and still qualify for Medicaid. However, the gifts must not violate the Medicaid rules. Generally, if done properly, you can often save as much as one half of your assets or more through a properly designed gifting plan
But remember, when it's given away, it's given away. Studies have shown that "windfall" money received by gift, prize, or lawsuit settlement is often gone within three years. In other words, even when the children promise that money will be available when needed, their own "emergencies" may make them spend the money. You must consult and experienced Elder Law attorney on how to set a plan that complies with the law and achieves your goals.
Will I Lose My Home?
Many people who apply for medical assistance benefits to pay for nursing home care ask this question. For many, the home constitutes much or most of their life savings. Often, it's the only asset that a person has to pass on to his or her children.
Under the Medicaid regulations, the home is an unavailable asset. This means that it is not taken into account when calculating eligibility for Medicaid. But in 1993, Congress passed a little-debated law that affects hundreds of thousands of families with a spouse or elderly parent in a nursing home. That law requires states to try to recover the value of Medicaid payments made to nursing home residents. This is called Estate Recovery.
Estate Recovery does not take place until the recipient of the benefits dies. Then, federal law requires that states attempt to recover the Medicaid benefits paid. In order to protect your home, you should seek assistance from an experienced Elder Law attorney.
Aging persons and their family members face many unique legal issues. As you can tell from our explanation of the Medicaid program, the legal, financial, and care planning issues facing the prospective nursing home resident and family can be overwhelming. If you or a family member needs nursing home care, it is clear that you should seek expert legal help. Where can you turn for that help? It is difficult for the consumer to be able to identify lawyers who have the training and experience required to provide expert guidance during this most challenging time.
Generally, Medicaid planning is an aspect of the services provided by Elder Law attorneys. Consumers must be cautious in choosing a lawyer and carefully investigate the lawyer's credentials.
How do you find an Elder Law attorney that has the knowledge and experience you need? You may want to start with recommendations from friends who have received legal help with nursing home issues. Who did they use? Were they satisfied with the services they received? Hospital social workers, Alzheimer and other support groups, accountants, and other financial professionals can also be good sources of recommendations.
In general, a lawyer who devotes a substantial part of his or her practice to Medicaid planning should have more knowledge and experience to address the issues properly. Don't hesitate to ask the lawyer what percentage of his practice involves Medicaid planning. You may want to ask how many new Medicaid planning cases the attorney handles each month. There is no correct answer. But there is a good chance that an attorney that assists with at least 3-4 nursing home placements each month is likely to be more up-to-date and knowledgeable than an attorney that helps with two placements a year. Ask whether the lawyer is a member of any Elder Law organizations. Is the lawyer involved with committees or local or state bar organizations that have to do with Medicaid planning? Does the lawyer lecture on Medicaid planning? If so, to whom? (For example, if the lawyer is asked to teach other lawyers or professionals about Elder Law and nursing home planning, that is a very good sign that the lawyer is considered to be knowledgeable by people who should know.) If the lawyer lectures to the public, you might try to attend one of the seminars. This should help you decide if this is the lawyer for you.
In the end, follow your instincts and choose an attorney who knows this area of the law, who is committed to helping others, and who listens to you and the unique wants and needs of you and your family.